Proposed Regulatory Change of Treatment of a Guaranteed Payment from a Partnership to a Partner
Michigan Business & Entrepreneurial Law Review, Forthcoming
Posted: 13 Dec 2015 Last revised: 23 Jan 2016
Date Written: December 11, 2015
Abstract
On July 23,2015, Treasury promulgated a proposed regulation primarily concerning guaranteed payments under section 707(c). This article sets forth the changes proposed by the proposed regulation and the Preamble to it. The author takes issue with two significant parts of that proposal. The proposed regulation relies on committee reports for the Tax Reform Act of 1984 for the proposition that an amount payable by a partnership to a partner is not made to him in his capacity as a partner unless he bears a substantial entrepreneurial risk as to the amount and fact of payment. The author contends that if that proposition were correct, it would vitiate section 707(c). The author concludes that the reliance on entrepreneurial risk is improper. The proposed regulation would change the regulatory treatment of the situation where a partner is entitled to a percentage of partnership profits subject to a guarantee of a minimum figure. The author contends that that proposed change also is improper.
Keywords: Guaranteed Payments, partnership, partner, entrepreneurial, profits
JEL Classification: H2, H20, H25
Suggested Citation: Suggested Citation